INFO: USDA economist Ricky Volpe says the drought won’t affect overall food prices for the rest of this year, but it will contribute to higher food prices next year.

Ricky Volpe, USDA Economic Research Service

1.Volpe says overall food prices should not be affected this year by the drought.

We’re still looking at two and a half to three and a half percent and that is because most of the impact of the drought, which is the big story right now for food prices, is expected to be felt in 2013.

2.Volpe says the drought will contribute to higher than average food price inflation in 2013.

We’re looking at grocery store prices to go up three to four percent, which is a range that does not include historically normal food price inflation, which is about two point eight, two point nine percent. So most mostly owing to this drought, how we have seen it affect crop prices, how we expect to see it filtered into retail food prices, we are looking at 2013 as being the year of higher than normal food price inflation for American consumers.

3.Volpe says beef prices will be going up more than most other foods in 2013.

The highest inflation, the highest forecast we’ve set is for beef and veal prices to go up four to five percent in 2013, but I need to note that is not entirely because of the drought. The beef and veal….the whole sector has been subjected to structural inflation for a long time now, since the start of 2011, because inventories are so low. The drought is expected to exacerbate this into heightened inflation throughout 2012 and into 2013, but when people look at these forecasts and they see high numbers for beef and veal, they shouldn’t think that’s because the price of corn is going up. There are bigger, more longer term issues with those foods.

4.Volpe says consumers will not see big price increases for produce this year and next year.

Probably the most importantly in the minds of most consumers…fruits and vegetables. They’re having a great year for prices so far in 2012 and 2013 we do expect normal, year over year food price inflation on the order of two to three percent for those foods.

The most important mechanism by which this drought is affecting food prices is we see the price of corn go up, that drives up the price of feed, and in turn the price of animals that go to slaughter or animal products. However, more longer term down the road into 2013 possibly into 2014, we’re going to see these higher corn and soybean prices built into packaged, processed, more shelf stable foods.